Monday, March 3, 2008

This isn't current as it came out Thursday afternoon, but its worth visiting.

Jabil, speaking at the Goldman conference, indicated they were seeing a gradual stall in business, similar to the recession of '91. Things have been getting progressively slower. Display business is doing very well, but things are eroding. It's not fall of a cliff weakness like 2001, but their internal forecasts have been dropping. The company has been indicating weakness in telecom/networking for a couple of quarters now. Their customers in telecom/networking are Ericsson, Cisco, Hewlett Packard, Alcatel Lucent, Tellabs and 3Com. Obviously, these comments have contributed to the economic slowdown fears rampant in tech.

I like to pay attention to what contract manufacturers tell you about business as they're the core of the tech build (Asia tends to be a better source of this type of information as the data is more frequent and less guarded). I don't like to invest in them. I think they're glorified sweat shop, cost plus businesses that compete with less regulated overseas competitors. Furthermore, they're all big rollups. A few years ago they started buying manufacturing divisions from other companies to guarantee themselves business and to keep revenues growing. I just can't get excited about the billion dollars of business they buy from a company in exchange for a billion dollars of debt they take on. There's no shareholder value added there and I think its almost impossible to really assess the organic growth. Ultimately these wind up being unwieldy cycle bets – they're so diversified you don't get any pure play on anything, just a hodge-podge of companies and products. It's like a swap meet index – you're buying what other companies sold to the contract manufacturer. Inherently these are less attractive businesses.